Many Americans are facing an uncertain financial future right now. The coronavirus pandemic, though, hasn’t been all bad economic news. Strict stay at home orders have meant fewer expenses in many areas: travel, eating out, cultural events, gas, new clothing, etc. Similarly, the importance of an emergency fund, has become evident to most people, and causing them to reduce their extraneous spending.
In fact, the personal savings rate — the sum people are putting away as a percentage of their disposable income – jumped to 33% in April. For the majority of the preceding months, it had been at 8%, with a slight uptick to 13% in March. This is the biggest rate savings recorded since US Bureau of Economic Analysis began tracing the information in 1959.
And alongside all this saving, Americans are also receiving stimulus payments and tax refunds. These extra (even unexpected) influxes of cash are helping build up savings. The trouble is that interest rates are so low (historically so), making it hard to yield significant earnings on that extra income. These are a few ways to make the savings do more.
Interest rates on savings accounts are at an all time low of 0.06% annual percentage yield, or APY. Most big banks, like Chase, Wells Fargo or Bank of America give closer to 0.01%. While this isn’t much of a return, these savings accounts are convenient. The accounts are maintained in familiar branches and in the local community, making it easier to make deposits and interact with helpful humans. But they also incur high maintenance fees.
Virtual savings accounts
Higher rates of return are available in virtual savings accounts and they have the added benefit of being accessible and secure. Banks like Ally Bank, Vio Bank, Nationwide by Axos Bank, Synchrony Bank or Marcus by Goldman Sachs, offer lower surcharges and are eager to attract customers. than the major banks and will offer higher rates to attract customers. The savings’ rates are still high, and even if they dip they will still be better than traditional banks.
Certificate of deposits, or CDs, are similar to a savings account because it is backed by the federal government, but not as fluid. Rates of interest are higher based on the duration of the deposit. Money market accounts are another good option, since they earn higher rates and may allow for check-writing or debit cards. There are minimum deposit amounts and monthly fees. For those with a lot of extra cash, high-yield checking accounts, also known as reward checking accounts, are a good option. Incentives are offered for meeting specific account requirements and rates are higher than online or traditional savings accounts. While there aren’t usually fees, there are spending and activity requirements necessary to earn the high interest rate.